Everyone loves progress, but nobody likes change – or so the saying goes. Corporate finance professionals might agree when it comes to the Internet of Things (IoT). While this much-vaunted technological trend promises new operational efficiencies and revenue opportunities, IoT also poses significant transitional challenges across legacy supply chain management, data systems and departments within many organizations. Managing those challenges poorly could lead to losses or lower returns.

IoT technologies collect data in the supply chain via identity chips, sensors, communication devices, cloud computing networks and analytics engines – all working together to fuel automation, continuous feedback and better decision-making. Global spending on IoT is expected to reach $1.29 trillion in 2020, with the manufacturing, transportation, utility and consumer sectors in the lead, according to the IDC market research firm.1 Put another way, more than 100 billion IoT-connected devices are expected to be installed worldwide by 2025, according to BIS Research.2

Meanwhile, millions of pre-Internet assets continue to provide value for global supply chain managers, but lack the connectivity of IoT, as reported in Automation World.3 Some of these assets can be upgraded to IoT using cloud computing, for example, and gateways that translate messaging protocols and physical interfaces. But these are only transitional measures, leading ultimately to replacement strategies due to such trade-offs as performance constraints.

Supply Chain Managers Risk Premature Obsolescence

One impending risk for international supply chain management is underscored in a report aptly titled “The Internet of Prematurely Obsolescent Things.”4 "We're not just talking about aging equipment in place today that might get yanked out of service early to make way for new connected things," the report says. "We're talking about brand-new smart-connected things being sold and installed today that will have shorter lives than their predecessors precisely because they are smart and connected."

Compounding these risks is the natural tension between two very different cultures within organizations managing global supply chains – that is, between operational technology teams and information technology (IT) teams. “People in operational technology purchase costly hardware that often stays in place for decades, while those in IT are concerned about data management and are used to replacing or updating technology as soon as something better comes out,” according to Automation World5.

Meanwhile, global supply chain managers face data issues as well as device issues. “The most critical driver of value in an IoT system is the ability to unlock and extract data from devices, aggregate it, share it with business logic IT systems, analyze it, and make decisions based on that analysis,” according to Wind River, a provider of embedded software for IoT.6 What’s more, “The best insight and reporting often come when IoT and legacy data systems are combined,” according to a report on Toolbox.com, a professional community publishing service.7 “The trick is recognizing they are different – and thoughtfully mixing the two together.” For example, IoT data can be very dense and unfiltered by human interaction, so that it may need filtering and other calibration using known findings from legacy data.

The spread of IoT also raises security issues that should be addressed at the C-level of any organization. Some compare it to the “bring your own device” trend of recent years, saying companies should establish IoT supply chain management policies that are akin to their policies defining what mobile devices can connect to their networks.8

Doing the Cost/Benefit Analysis

Given these and other challenges, “it is critical for firms to make fact-based, informed decisions based on a clear understanding of not just market nuances and complexities, but also an honest assessment of in-house assets and capabilities,” according to Stax Inc. consultants.9 Stax suggests that answering key questions about the relevance, feasibility and implementation of IoT can help companies capitalize on supply chain management opportunities the technology presents. Among those questions: Will competitors with IoT disrupt our operating environment? How can we leverage existing assets? Should we leverage partnerships with IoT enablers?

IoT offers potential upside for global supply chains in productivity, efficiency, new business models, innovation and competition. By 2025, companies that incorporate IoT technologies throughout their global supply chains could be at least 10 percent more profitable than competitors that don’t, according to the Stax analysis.10 Monetizing IoT can even transform how businesses bill customers, replacing some traditional one-time fees with usage-based billing. For example, a jet engine manufacturer can sell “power by the hour” as a service, instead of selling the hardware as a capital expense, according to the Internet of Things Institute.11

Some question where IoT is today in the hype cycle that accompanies any promising technological development. Jerry Caron, senior vice president of the Current Analysis market research firm, recently addressed the matter, saying, “The speed with which many organizations require IoT implementations to at least pay for themselves is eye-popping, but also a clear sign that IoT in the enterprise is well beyond hype and into the realm of the actual.”12 In a Current Analysis survey, justifying the value of an IoT project was cited as the second-biggest obstacle to implementation, after security. More than 50 percent of enterprises said they hoped for a return on investment in under a year, and nearly 70 percent of those whose enterprises have already implemented an IoT solution indicated their project had met their ROI expectations.

The Takeaway

The promise of IoT in international supply chain management is high, in terms of both productivity and innovation, but it will be challenging for most companies to transition legacy supply chains to incorporate hundreds or even thousands of IoT devices and the data they deliver.

The Author

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.

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